The book provides the most holistic, yet still readable, description of what Holacracy is really all about (pun intended). Though it still leaves much to be desired (which we’ll get to in a second), it does a great job illustrating how governance and tactical meetings work and touching on some of the less known aspects of Holacracy such as its approach to strategy and to deadlines, both strongly resonating with me. The aspect that would have probably benefited the most from further exploration is the circle-based org structure. It doesn’t address some of the key org design challenges that exist in traditional hierarchical structures, like the need to alternate organization and focus by function, product/service and customer/region. It also enacts a meaningful organizational constraints that doesn’t get acknowledged: if each sub-circle is represented in governance and tactical meetings by both a lead-link and a rep-link, it puts the limit on the number of sub-circles within a circle at about 4-5. Otherwise the number of people attending the meeting quickly jumps to over 10 people, which makes them exponentially more challenging to run.

Sadly, my high level takeaway is that Holacracy is an exciting but incomplete paradigm. And there’s some reason for pessimism since this omission was made by design. Let me explain:

Many of the principles and concepts that Holacracy is based on and consists of strongly resonate with me: roles as living and evolving entities, the radical distribution of authority through the circles-based org structure, the unique and highly effective governance and tactical meeting structure, even thinking about strategy as a set of heuristics rather than a high-level, executable plan.

The one principle that Holacracy takes too far, in my opinion, is the decoupling of “role from soul”. Holacracy accurately observes that under the traditional paradigm, four “spaces” are too tightly coupled: the person space, the role space, the tribe space and the organization space. A good example is the traditional manager’s job being simultaneously responsible for both for the business outcomes accomplished by her employee (role space) and her employee’s professional growth and development (person space). The solution that Holacracy prescribes is radical decoupling, ignoring the fact that in cases of extreme decoupling, misalignment will lead to chaos. Holacracy explicitly takes the “human spaces” (left column, person+tribe) out of scope:

Or, to use a more familiar diagram to the readers of this blog:

Dealing with “human spaces” problems such as hiring/firing, compensation, growth, etc. is not part of the Holacracy “operating systems” but mere “add-ons/apps” that each business should figure out on its own, once they adopt Holacracy. Yet at the same time, it’s been acknowledged that Holacracy is at odds with traditional “human spaces” solutions, and the friction between the two is a key cause for some companies attempting to adopt Holacracy but failing to successfully do so. To go back to our manager example, Holacracy offers clear guidance on what to do with half of her traditional responsibilities, but leaves practitioners completely on their own about the other half. To me, that sounds like a classic case of mistaking a bug for a feature.

A fix for this bug, would require viewing the organization as a sociotechnical system, acknowledging that it has a human component that cannot be fully decoupled. The human systems that align with the process components of Holacracy have to be an integral part of the Holacracy “operating system” rather than an add-on “app”.

Note that none of this invalidates any other principles and concepts that are already an integral part of Holacracy. I am confident that Holacracy is a superior organizational paradigm compared to the traditional one. I’m just disappointed that its creators decided to “call it done” and draw the operating system/apps line where they did. I fear that only addressing half of the problem space will have a substantial negative impact on its adoption (and success) rate. To use another software metaphor, they seem to be building the right product, I’m just not sure they have a Minimum Viable Product. Yet.

This post builds on a previous post in this blog, where I made the case for having architects for organizational systems. Under this paradigm, business outcomes hinge on the interaction between 5 sub-systems: org structure, incentive systems, work systems, collaboration systems, and people systems.

The Table Group, Patrick Lencioni’s consulting group, argues that “organizational smarts” – strategy, technology, marketing, finance, etc. – is no longer the driver of competitive advantage, since intellectual ideas are not a sustainable differentiator in an age when information is ubiquitous. Therefore, what truly matters is “organizational health” – minimal politics, minimal confusion, high morale, high productivity, low turnover, etc. I’d argue that even “healthy” is not enough. What we really need are organizations that are “fit” to deliver on their mission/business outcomes. All athletes/top performers need to be healthy. But a weight-lifter and a cyclist need to be fit in different ways in order to be the best in what they do.

Which brings us back to the 5 systems. Organizational fitness is reflected in the way these systems work in concert to drive the specific business outcomes an organization is trying to accomplish. And, without falling into a recursive trap, building and maintaining organizational fitness is then a business outcome in and of its own. Therefore, we must ask ourselves: since org design is a key system that enables business outcomes, are businesses organized in a way that enables them to build and maintain fitness?

The good news for the Table Group, and the bad news for almost everyone else, is that the short answer is: no. We know from Conway’s Law that the way we divide and assign responsibilities in the organization has a material impact on its function. A typical organization has departmental heads for all the “organizational smarts” disciplines: a head of marketing, a head of technology (R&D/CTO), a head of finance, and so on. Yet “organizational fitness” is not expressed in the organizational structure in any material way. Responsibility over the 5 systems is typically no-one and everyone’s job, so it’s no surprise that many organizations are not organically poised to build and maintain a high level of organizational fitness. The one exception to this rule is people systems, which have a well defined owner, at least in theory – the head of people. But that’s a story for a different blog post altogether.

So perhaps it’s time for organizations to revisit the traditional structure of the executive team, and consider whether an alternative structure can better express the growing importance of organizational fitness as a critical discipline driving competitive advantage.

In 1960, Douglas McGregor wrote his seminal book, “The Human Side of the Enterprise“, where Theory X and Theory Y, his two theories of human motivation, were presented in detail. Under Theory X, people are assumed to have a natural dislike for work. They avoid responsibility, prefer to be directed, lack ambition, and value security most of all. Therefore, they must be coerced, controlled, directed and threatened with punishment for the organization to achieve its objectives. Under Theory Y, people are assumed to view work to be as natural as play or rest. Given the right conditions, people can learn to accept and seek responsibility. They will exercise self-direction and self-control in the service of objectives to which they are committed. And the commitment is a function of rewards associated with achieving the objectives. Though McGregor was explicit that those theories should NOT be viewed as the two opposites of the same continuum, more contemporary management philosophies do view them as such, and therefore advocate for management practices that assume Theory Y is the “better” one.

Source: Trost (2009)

Reality, however, seems to be more complicated than this extreme simplification. 27 years later, Marvin Weisboard, in “Productive Workplaces“, proposed a view that seems to be describing reality more accurately. Theory X and Y are more like yin and yang, they are two parts of our personalities co-exiting within our selves, each having positive and negative aspects. Explaining his view in full would require too long of a digression, so the summary below will have to suffice:

Source: Weisboard (1987/2012)

Fast forward another 20 years to 2007. David Snowden publishes his now-famous Cynefin Framework in the HBR article titled “A Leader’s Framework for Decision Making“. In it, he’s making a strong case for leaders to apply a different leadership style depending on the nature of the problem/situation they are trying to address:

Source: Snowden and Boone (2007)

Snowden’s advocacy for a dynamic leadership style, seems to tie well with Weisboard’s dynamic view on Theories X and Y. Do they have more in common that meets the eye?

In a piece titled “Theories X and Y, Revisited“, Mathew Stewart proposed what I think can be the missing link. He argues that some of the confusion around Theories X and Y can be removed by supplementing these theories about human nature, with two additional theories, Theories U and T, about the nature of human relationship and specifically, human conflict. Theory U (Utopian) assumes conflict between people stems from misunderstandings. If you eliminate the false assumptions people are making, things will go back to the natural state of peace. Theory T (Tragic) assumes that conflict between people stems from real divergences of interest. Peace is temporary and depends on the system that defines the relationships, rather than on the attitudes of individuals. Combining the four theories creates four leadership approaches: Controllers (X+T), Programmers (X+U), Consititutionalists (Y+T) and Freedom Lovers (Y+U):

Let’s start by removing the judgmental tone in Stewart’s original classification. And then let’s add a dynamic view to the classification: the nature of the conflict (U/T) and the propensity for exhibiting a certain type of motivation (X/Y) are both influenced by the particular situation at hand. And we end with something that looks a lot like the Cynefin Framework:

The correlation is not perfect. But the similarities seem to be too many to be ignored. In my humble opinion, of course.

Nick’s main thesis is that large scale internet platforms (eBay, AirBnB, Uber, etc.) are utilizing a different paradigm in regulating user behavior on their platforms, compared to the paradigm used by “traditional” governing institutions. And now, it’s time for the traditional governing institutions to start adopting the new paradigm as well.

Under the old paradigm, trust, safety and security risks are managed using a permission-based model: who can act and how are being defined in detail and upfront; permission to operate needs to be granted explicitly, typically using a certification/licensing scheme. But once permission is granted, accountability/compliance is only weakly enforced, typically using periodic inspections.

Under the new paradigm, trust, safety and security risks are managed using an accountability-based model: accountability/compliance is strictly and continuously enforced using data on the player’s behavior. Open-access is the norm, and no explicit permission to operate is required, as long as the data to monitor behavior is being provided. Essentially, a higher up-front risk is accepted, as long as the cumulative risk exposure can be reduced through the data-driven learning.

Nick points out that some of the regulatory friction around permission-to-operate that these internet platforms encountered in recent years (Uber, AirBnb) is an outcome of this paradigm clash.

A similar push towards an open-access data-driven regulation, is brewing up in slightly less-sexy domains of the regulatory space such as Energy Efficiency. In recent months, several thought leaders in the space (1, 2, 3, 4) have advocated for a move away from traditional “deemed savings” approaches, based primarily on statistical sampling, to more progressive M&V approaches based on real-time data coming from Smart Meters. Similar to the web platforms, it’s the technological innovation, Smart Meters in this case, which unlocks the ability to switch to the new paradigm.

Personally however, I am much more interested in considering the applicability of this new paradigm in shaping internal policy inside corporations. You can think of internal policy as an effort to try and regulate employee behavior and promote the same trust, safety and security objectives. The upside is that the change management effort required to drive this paradigm shift inside a company is orders of magnitude easier, compared to changing policy at the city, state or federal level. The downside is that the amount of available data, may not reach the critical mass necessary to enable the new paradigm. But I agree with Nick that this is not a good enough reason to simply default to the old one.

Encouraging evidence already exists. Consider Facebook’s Release Management policy. It’s a pretty good example, of a data-driven open-access/high-accountability policy. The release engineering team (aka “the governing institution”), structured a system in which the responsibility to shepherding the code changes out to the world remains on the shoulders of the software engineer who introduced the change. Data from past-performance (some variation of mean-time-between-failures and mean-time-to-restore-service) on each engineer is collected and factored into a “push karma” score. Only if the score drops below a certain threshold, does the release management team intervene and put constraints on the developer’s ability to push code. The concept of “targeted transparency” applies as well: developers are aware of their “push karma” score and can take action to improve it. Is it a perfect policy? Probably not. But it’s sure a big step in the right direction.

The next frontier, in my mind, are more broadly applicable corporate policies. Consider a company’s expense policy, for example, where transactions are rather frequent and data is abundant. It seems like a prime candidate for a policy re-design under the new paradigm. Other corporate policies, like the ones meant to prevent sexual-harassment and discrimination or the ones meant to drive effective hiring/firing, seem like tougher nuts to crack, since data is scarce and the stakes around each transaction are much higher. Yet this shouldn’t discourage us from continuously pushing the envelope in that direction until we find solutions that work.

In it, he seemed to have captured a quintessential truth about the way technology platforms have evolved over the last 30+ years. There’s a recurring pattern of bundling and unbundling of technologies. An oscillation between proprietary, venture-backed platforms, and open, community-backed ones.

Nick puts it best:

“So there’s the pattern: tech companies build dominant market positions, then open technologies emerge which erode the the tech companies’ lock on power. These open technologies then in turn become the platform upon which the next generation of venture-backed companies is built. And so on and so on; rinse and repeat.”